NNN lease/commercial in Michigan

7 Replies

I'm doing my very first 1031 exchange. Selling a multi-family property in Oakland, CA that I've held for 14 months, earned 2x investment. Not seeing attractive CAP rates/cash flow in my area right now so am starting to look at NNN leases and other commercial properties in out of state markets. Michigan is attractive to me because we have a second family home there as well as lots of friends/family in the area, plus CAP rates in the 8%+ range.

Does anyone have experiences to share investing in NNN leases, Michigan markets (looking primarily at Grand Rapids area), or any words to the wise on 1031s?

Anywhere in Michigan will work. The beauty of the NNN lease is you will rarely if ever need to even see the building in your lifetime. Just make sure the Corporation guaranteeing the lease is highly rated. A guarantee is only as good as the guarantor.

Joe Villeneuve
REcapSystem
A2REIC

"CAP rates in the 8%+ range"

Cap rates for single tenant NNN are not in the 8 cap. If you show me the property I can show you why the higher cap is given ( shorter primary term lease left that is not financeable, NN, etc.)

Now there are strip centers multi-tenant that are 8 caps and NNN. We are closing on a bunch of them.

Michigan is a cold belt state and not where most investors are buying right now to hold long term. 

Originally posted by @Joel Owens :

"CAP rates in the 8%+ range"

Cap rates for single tenant NNN are not in the 8 cap. If you show me the property I can show you why the higher cap is given ( shorter primary term lease left that is not financeable, NN, etc.)

Now there are strip centers multi-tenant that are 8 caps and NNN. We are closing on a bunch of them.

Michigan is a cold belt state and not where most investors are buying right now to hold long term. 

 Beg to differ there Joel.  With everything you just posted above.  Not the least of which your last line about not investing in Michigan to hold.  The exact opposite is true.  Investors are coming in droves.

Joe Villeneuve
REcapSystem
A2REIC

Hi Joe,

Post here national tenant properties single net where they are selling at an 8 cap with a fresh origination of the primary term lease.

I am not talking about junker mom and pop type NNN stuff. I am talking quality assets.

Maybe they are coming for the smaller mom and pop type stuff. I just took a look on LoopNet. Single tenant even if it was for sale there at an 8 cap the per sq ft rate is in some cases 300 to 400 sq ft.

That tenant goes dark and your second generational tenant will trade much, much lower in rent knocking your cap down substantially. With single NNN and multi NNN the "devil is in the details". People bring me stuff all the time and I get into the lease and the deal doesn't work for a bunch of reasons.

The properties I am talking about are in the millions to tens of millions of dollars. I do not deal in the smaller properties. Those properties yes they trade at higher caps but that is everywhere.

Long term the warm belt states is where most of my investors are buying. Migration patterns show population levels declining in the cold belt states as retirees flock to warmer areas. That fuels job, population growth, higher median incomes, etc.

Every state has some areas that are good but overall declining areas or states are not good long term holds.

Everyone has their opinion and that's just mine. 

I tend to agree with Joel regarding Michigan. I haven't seen a cap rate on a long term (10+ years) NNN lease in a long time. I could be wrong, but would be nice to see someone post something like that.

Mark

@Jessica Yau The net lease market is seeing extremely high demand for assets with long-term, NNN leases due to the predictability of cash flow and lack of maintenance with the property. Because of this high demand and lack of supply in the market CAP rates have become compressed to to anywhere between 4%-6% for new construction with investment grade credit tenants. You can see these CAPs increase as lease terms start to expire and leases are structured NN. There is a property in Big Rapids, MI that you may be interested in that I can think of off the top of my head. I would be happy to connect with you and discuss your 1031 and investment strategy moving forward. I specialize in the management of single-tenant net lease portfolios. Have a great day

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